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Pharmaceutical industry may witness a core sales growth of 26 per cent in the third quarter of FY 2014 Bank of America-Merrill Lynch said in a report.

"We expect growth momentum for the pharma universe to sustain with core sales growth of 26 per cent, EBITDA growth of 37 per cent and PAT growth of 40 per cent. Revenue growth will largely be driven by continued momentum in the US, strong growth in RoW markets, higher currency realisation (up 14 per cent YoY), and strong margin traction will drive bottom line growth in Q3," the report said.

"On the domestic front, after two quarters of dismal performance due to trade channel disturbances, we see some recovery in volume with double-digit growth for the quarter. Core EBITDA margins are likely to expand by 180 BP (basis points) to 23.8 per cent, driven by higher contribution from niche launches, improved product mix, and currency benefits," it said.

"We see continued accretion from limited competition/complex products including Lipodox and Doxycycline of Sun Pharma, Tricor and Zymaxid of Lupin, Vidaza, and Dacogen of Dr Reddy. We believe incremental launches in niche segments will continue to drive growth in the ensuing quarters," it said.

While a price cut on NLEM (National List of Essential Medicines) products will impact margins in the domestic business, most firms have already hiked prices on non-NLEM products and hence margin compression will be limited to a few large affected players, DSP Merrill Lynch (India) Research Analyst Manoj Garg said.

The core margins are expected to expand by 180 basis points to 23.8 per cent in the third quarter. "Despite low contribution from domestic market, we expect core operating margins to expand by 180 basis points to 23.8 per cent, led by higher contribution from niche launches, improved business mix, and favourable currency. We see strong margin expansion for Dr Reddy (up 300 basis points year-on-year) and Aurobindo Pharma (up 330 basis year-on-year)," Garg said.